Once approved, the exploitation concessions are expected to provide the company and its partners with the authority to commercially exploit the discoveries for a 25 year term plus an option to extend for 10 years. Production is expected to commence following the issuance of the formal exploitation concession. Preliminary discussions have been held with an adjacent producer for processing and sale of future crude oil production until the company installs its own facilities. The remaining acreage of the Medanito Sur block continues to be subject to the terms of the existing exploration license.
In addition to installation of early production facilities, the company has continued an in-depth study of the drilled wells by integrating well data with the company’s extensive 3D seismic database. This provides the company with better understanding of reservoir characterization. To date, up to 12 additional drilling targets on the Medanito Sur block have been identified. Additional drilling is planned for 2009 which the company currently plans to fund from expected operating cash flow generated from the Medanito Sur block.
As previously announced all three exploration wells drilled on the Medanito Sur block discovered light (30 degree API) sweet crude oil. The El Calden X-1 well was drilled to a depth of 996 meters and flowed at a rate of 548 bopd from two zones, the El Puma X-1 well was drilled to a depth of 1420 meters and flowed 83 bopd and the El Jabili X-1 well was drilled to a depth of 1220 meters and flowed 151 bopd.
The El Calden X-1 well was subsequently re-tested in order to obtain bottom hole samples of oil and gas and to take more accurate readings of bottom hole pressure and flowed 538 barrels per day for 48 hours under stable natural flow with flowing pressure of 105 psig through a 12 mm choke. Samples and pressure information have been sent to a third party consultant for a detailed PVT study which will help to determine what type of treatment will be optimal for long term exploitation of the reservoir. The company has also retained engineering consultants to complete a field development study to optimize development of the company’s Medanito Sur discovery.
On the Los Toldos II block, the company has continued its 3D seismic interpretation program and has identified three drillable prospects.
On the company’s Totoral-Yerba Buena-Bajada Colorada blocks, which measure about 4,580 square kilometers, interpretation of the 3D seismic program, completed over 122 square kilometers (representing just 2.7% of the total area) of the blocks, has identified two drillable prospects to date.
Given the long term to expiry on both the above blocks, the company plans to delay drilling until the improvement in the economic climate.
Bayovar Potash Brine Reservoir Update
As previously announced, the company acquired a 70% working interest in the 84,000 hectare (840 square kilometers) Bayovar potash concession located in the Sechura Desert, Northwest Peru, in October, 2008. In early March, a group of the company’s directors and a technical team of consultants from Germany and the US conducted a site visit at the Bayovar potash brine concession for the purpose of examining and evaluating the nature of the surface materials, the brine, the existing evaporation ponds from the 1960’s, and access logistics from neighboring roads and the Bayovar deep water port.
As well, the group observed the large-scale construction activities being carried out by Vale do Rio Doce, the large Brazilian mining company, on its adjacent phosphate property. Published reports from vale indicate that the company plans to invest about $500 million to have this mine in production in 2010, producing about 3,500,000 tons per year of phosphate for fertilizers.
Easton Wren, a company director, shareholder and geoscientist, accompanied the group on the field trip and made the following observations:
We observed the surface extent of the potential resource and the desert environment that is conducive to solar evaporation of the potash concentrated brine; the easy access for operations, the existence of essential fresh water and wind, all combine to make this project potentially economic and green. We were impressed by the large 820 sq. km. size of this concession.
To date, the company has completed a considerable amount of field work and analysis of historical geological and engineering reports as well as historical feasibility studies prepared between 1962 and 1986. Additional field work is currently being undertaken by the company’s US and Peru based consultants. In addition, the company’s German consultants have been retained to prepare a preliminary brine resources assessment study.
